India National Steel Policy 2017

A policy that has rattled the Steel sector is the National Steel Policy.

The Union Cabinet of India approved the National Steel Policy (NSP) on 3rd May, 2017. The
NSP is in conjunction with the Government of India’s long-term vision of giving a thrust to the steel
sector. India is the 2nd largest producer of steel globally currently producing close to 134MT in 2017-
18 vs 110MT in 2014-15. Steel is important to a developing economy as it is extensively used in the
sectors such as infrastructure, defence, automobiles. The steel sector contributed over 2% to the
GDP and provides close to 25 lakh jobs in the country.

Key Components of the NSP 2017

 Increase the capacity to 300 Million Tonnes (MT) steel making capacity by 2030-31 through
an additional investment of Rupees 10 lakh crore by 2030-31
 Per Capita steel consumption growth from 60kg to 160kg through policy support to
consuming sectors such as infrastructure, housing and automobile sectors
 Domestically produced steel for high end applications such as electrical steel (CRGO), special
steel for power equipment, aerospace and nuclear applications
 Increase domestic availability of washed coking coal to reduce imports by 50% by 2030-31
 Become a net exporter of steel by 2025-26 and export close to 24MT of steel by 2030-31
 To encourage industry to be a world leader in energy and raw material efficient steel
production by 2030-31, particularly in the MSME steel units to improve overall productivity
 Promote Basic Oxygen Furnace (BOF) steel making in which carbon rich molten pig iron is
made into steel
 Establish a Steel Research and Technology Mission of India (SRTMI) to boost Research and
Development in the steel sector

Policy Dynamics

The policy focusses on barriers such as high cost of inputs, dependency on imports, availability of
raw materials and the financial stress impacting the sector. The policy proposed gas-based steel
plants and technologies such as electric furnace to reduce dependence on coking coal in blast
furnaces in order to cut down on the import bill of the expensive coking coal. The public sector firms
will be encouraged to divest their non-core assets through restructuring and mergers & acquisitions
and aim for economies of scale. The government will encourage setting up Greenfield plants (a plant
that has been set up from scratch as opposed to owning a plant that has already been set up and
lying down defunct, which is a brownfield plant) under the Sagarmala Project to tap cheap imported
raw materials and export output in a cost-effective manner. A cluster-based approach will be
followed wherein common infrastructure on consortium approach for optimum use of land,
availability of raw materials and economies of scale to be achieved especially in the MSME steel
sector.
Current Situation of the Policy

India is the 2nd largest producer of Steel as on October 2018 and has added close to 7MT of
production in 2017 alone. In FY17, India became a net exporter of Steel, exporting close to 8.2MT
and on the other hand imports have declined by close to 36% from 11.7MT in FY16 to 7.5MT in FY18.
This has led to a savings of close to INR 5,000 crore as the import bill has gone down. This also assists
in reducing the Trade Deficit and in the larger scheme of things the Current Account Deficit (CAD)
too for the country as we are importing less from other countries. This is beneficial going ahead as
India has a CAD of close to 1.9% in FY18 which is likely to inch up considerably in FY19 due to the
spike in the oil prices during the year. Keeping the CAD under check going ahead will be a major
factor in determining the foreign exchange rates for the Indian Rupee. With the Foreign Portfolio
Investors (FPI’s) and Foreign Institutional Investors (FII’s) pulling money out of India due to the
interest rate hikes in the US, it is imperative for India to control its CAD in order to maintain a
balance of the Indian Rupee as against the US Dollar and other currencies. But going ahead, if the
production in high end steel continues domestically then the dependence on imports will reduce and
will aid in bringing down the CAD. The focus of the policy has been to produce high quality steel and
thus has been able to achieve that by starting to focus on quality and substitute domestic high-
quality steel as opposed to importing the high quality from other countries.

The steel policy has started paying rich dividends in terms of adding close to 24MT of crude steel
capacity. The policy also led to imposing a Minimum Import Price (MIP) on the imports to curb the
inflow of cheap Chinese sub-standard products. The government has also levied an anti-dumping
duty of up to $185 per tonne for 5 years on certain varieties of Chinese steel to guard the domestic
players from the cheap imports received from the neighbouring country. The imports of straight
length bars and rods have increased to 181,000 tonnes in FY17 from 57,000 tonnes in FY14. The
prices charged for such kind of steel products were below the normal value and the domestic
industry suffered on account of that and hence it was the right decision to protect the domestic
industry by levying the anti-dumping duty for those kinds of products that were being dumped into
the country at below-normal prices in the domestic market. Thus, the purpose of the anti-dumping
duty was to eliminate the pain in the domestic industry and re-establish fair play and competition in
the Indian market.

The per capita steel consumption has risen from 60kg in 2017 to about 68kg in 2018 whereas the
global average steel consumption per capita is close to 220kg. Thus, India is way below the average
per capita steel consumption. But now we are beginning to increase the per capita steel
consumption through the Make in India initiative and the several schemes launched by the
government. The per capita consumption increased by close to 10% within a year of launching the
NSP 2017 policy. This was on account of launching several schemes such as the Housing for All by
2022. This scheme provides a huge opportunity to use steel intensive structures. The Ministry has
made use of this scheme to drive up the per capita usage of steel. Commercial, Residential buildings
and flyovers provide a good opportunity to drive up utilisation of steel and thus working in
conjunction with the Ministry of Road, Transport and Highways has allowed steel to be utilised in
these sectors and drive up the per capita usage of steel. In the Railways, steel usage was used only in
laying railways tracks, wagons and platforms. Efforts were made to increase using steel in building
Foot Over Bridges (FOB’s), rail coaches, building the railway station and building the railway colony
buildings. Thereby increasing the per capita consumption of steel in the railways. Overall, we can see
that the Make In India initiative undertaken by the current government has given an impetus to
several important sectors such as boosting investments in infrastructure, automobiles, shipbuilding,
power sector and construction that will stimulate the demand for the steel sector and thus increase
the demand for steel in the coming years and hence push up the capacity incrementally to reach the
target of 300MT capacity of crude steel by 2030-31.

Critical Review of the Policy

The target of reaching a crude steel capacity looks a bit ambitious at this stage given that
profitability for the sector has been under pressure as the majority of the capacity is owned by the
private sector. Though the policy has started off on a good note as the capacity has reached close to
134MT and added close to 7MT since the policy announcement. Achieving the 300MT of capacity
will require mobilization of resources such as natural resources, financing, manpower, land and
infrastructure. Financing remains a major challenge in the current scenario with the banks taking up
several measures to clean up their books and reporting the Non-Performing Assets (NPA’s). This may
impact funding to the capacity expansion plans for the private players in the industry. There are
some companies that had filed for bankruptcy after failing to repay the banks and that process is
currently under process. This has pushed major consolidation in the steel industry though it will be
sometime before which all the cases under the Insolvency and Bankruptcy Code (IBC) in which close
to 30MT of steel lying under the bankruptcy proceedings. Thus, with so many cases lying under the
court proceedings, the banks may not lend to the private players within the sector that easily. Unless
the banks start freeing up capital to lend to the sector once again meeting the capacity target of
300MT looks difficult. Nothing has been mentioned in the policy with regards to the consolidation in
the industry with so many plants lying idle due to solvency issues. This is where we feel the
government missed out on the opportunity to solve the crisis in the sector.

The other big issue with the policy is that to achieve the 300MT capacity expansion is the availability
of raw materials for the industry such as coking coal. Currently about 80% of the coking coal has to
be imported from mostly Australia. The world market for coking coal is controlled by 2 players who
call that shots for the pricing of the volatile raw material. Therefore, such kind of volatility in prices
can be seen as big impediment to the domestic steel industry players. The policy calls for new
technology that will reduce dependence on coking coal but that will take some time to implement.
As per the NSP 2017, the industry is focussing on installing top-end washeries at pit heads of mines
and use Corex technology that will reduce the usage of coking coal. Pelletisation – converting iron
ore into bullets is another method that has come into use after forming the NSP 2017 that reduces
dependence on coking coal. Tata Steel is using the palletisation method and the Jindal Steel and
Power plants use the Corex Technology in their plant as a substitute to coking coal. Thus, we can see
that the NSP 2017 has had a positive impact in terms of finding alternatives to the coking coal and
some of the private players have started using the technologies outlined in the NSP 2017 to reduce
dependence on coking coal. But the idea of reducing imports by over 50% for coking coal seems like
an ambitious target as the yield rates from the washeries is only 20-25% which restricts the supply.
The reliance on domestic coking coal seems to be a farfetched idea as the quality of coking coal is a
big impediment and the production is not expected to rise significantly and is expected to be around
17MT by FY23 as per CRISIL estimates and the imports will continue to be on the upward spiral and
touch close to 58MT by FY23. Thus, this is another area that the government has a farfetched goal
for reducing the reliance on coking coal from imports as the yield rates from the alternative sources
are on the lower side. Therefore, we believe the domestic meeting of coking coal requirements as
per the NSP 2017 seem unachievable due to the high impurities present in the indigenous coal.

The other goal of the NSP 2017 is to export 24MT steel by 2030-31 but currently India exports close
to 8.2MT of steel as of FY17. But one of the biggest impediments we find that makes India
unattractive on a global scale is on cost competitiveness and on the quality front. Some of the
biggest issues stem from the landing cost of the coking coal from Australia and Canada. The internal
cost of freight within the country is on the higher side which increases the cost of steel greatly and
thus is no able to compete with China in the global markets on account of China’s great economies
of scale as they produce close to 831MT in 2017 as opposed to India’s 101MT in the same year. In
terms of the quality front, as per the NSP 2017 India has started focussing on improving the quality
and hence we can compete on that front going ahead. But in terms of the steel pricing, we don’t feel
that India can compete on the global stage due to the raw material constraints that are driving up
prices. Thus, we feel that the export target of 24MT by 2030 would not be able to be met.